Bucyrus Expects Copper Prices to Remain Elevated

Copper prices have doubled in almost a year. Bucyrus International (BUCY), an equipment mining company with a $3.6B market cap, provided some important commentary in its earnings report last week regarding the state of the global economy. In particular, BUCY expects copper prices to remain elevated (quotes from Seeking Alpha transcripts from the conference call):

“Particularly in oil, sands, copper and iron ore as we’ve talked about in the past, the big five [mining companies] that do mind the preponderance of the copper, their yields are down significantly which means that they need more equipment to get the same amount of ore out of the ground, and quite frankly the lack of the exploration in the low yields has led to the type of copper price that we’re seeing right now, and until more production can hit the market and that’s not going to be immediate, we see that copper pricing will continue to stay where it’s at.”

There has been a lot of debate about how long China’s commodity stockpiling cycle will last and debate about whether “real” demand will pick up the slack once that cycle ends. According to BUCY, it seems that the lack of investment starting from the deflationary panic of 2008 has left copper producers flat-footed. Copper could lead the way in demonstrating how a destructive deflation, followed by historic easy monetary policy, introduce the global economy to its next inflationary cycle. Stay tuned…

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